Essays on the effects of childhood experiences on household decision making
School of Business | Doctoral thesis (article-based) | Defence date: 2015-10-09
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Aalto University publication series DOCTORAL DISSERTATIONS, 121/2015
AbstractThis dissertation studies the effects of personal experience on household decision making. I gauge personal experiences using a novel measure: the childhood experience of father's job loss. This measure is appealing for the following reasons. First, father's job loss constitutes a salient experience that is likely to be remembered for years to come. Second, the experience directly relates to the perceived riskiness of labor income, the most important source of income for the majority of households. Third, the experience can be directly observed at the level of an individual in public datasets such as the PSID and HRS. Fourth, childhood experiences are in most cases determined decades before the adult household outcomes. As a result, the effects of these experiences are less susceptible to omitted variable problems than the effects of adult experiences. The first essay examines the effect of childhood experiences on the adult likelihood of participating in the stock market. I find that the experience of father's job loss reduces stock market participation by 2.9 percentage points in a sample where the mean stock market participation rate is 17%. The second essay studies the effects of the experience on household debt. The childhood experience of father's unemployment predicts 17% lower debt levels and 10% lower debt-to-income ratios|even though the sample consists by construction only ofnear- or already retired households. The third essay finds that the childhood experience of father's job loss is associated with a 2.4-percentage-point lower likelihood of being an entrepreneur in a sample where the mean entrepreneurship rate is 11%. The childhood experience of father's job loss should influence the formation of beliefs and risk attitudes only if the job loss is involuntary. As a pseudo-placebo test, I estimate the effect of the childhood experience of father quitting from his job voluntarily. As expected, I find no statistically significant effect for this experience. Father's job loss should have about the same effect on family life regardless of the age of the children. However, experiences gained at a very young age are probably neither memorized nor fully understood, and should therefore have little effect on the formation of beliefs and risk attitudes. As another pseudo-placebo test, I examine whether very early experiences influence later household choices. As expected, I find no evidence of such effects.
Supervising professorKeloharju, Matti, Prof., Aalto University, Department of Finance, Finland
personal experience, job loss, stock market participation, household debt, entrepreneurship
- Lehtoranta, Antti. Childhood experience of father’s job loss and stock market participation. Unpublished working paper.
- Lehtoranta, Antti. Childhood experience of father’s unemployment and household debt. Unpublished working paper.
- Lehtoranta, Antti. Childhood experience of father’s job loss and entrepreneurship. Unpublished working paper.